Can money solve social problems
The reasons for this development are complex and controversial among economists (see: "Research into causes"). Overall, the experience of the last few decades calls into question the thesis that the increasing prosperity of the rich sooner or later also seeps into the lower classes of society.
Empirical studies also raise considerable doubts. For example, a research team led by Dan Andrews from Harvard University examined the connection between inequality and growth using the example of twelve industrialized countries and for the years from 1905 to 2000. “We cannot find a systematic relationship between the income share of top earners and economic growth,” is the conclusion .
At the same time, there are increasing indications that excessive income inequality in a society is associated with considerable social and economic disadvantages. "If the distribution of income diverges too far, then social cohesion is at risk," emphasizes the Mannheim economist Grüner.
The British epidemiologists Richard Wilkinson and Kate Pickett argue in their book "The Spirit Level", published in 2009, that virtually all social and societal evils are closely related to the distribution of income in a country. For example, crime and drug use in a country are higher, the greater the gap between rich and poor.
The enormous income inequality in the USA may also have been a reason for the financial and economic crisis of the past few years. Raghuram Rajan, former chief economist of the International Monetary Fund (IMF) and today professor of economics in Chicago, advocates this thesis. "There was tremendous political pressure to do something about it," argues Rajan. The traditional instruments of economic policy - higher taxes for high earners and direct transfers to the poorer classes - have become unpopular since the 1980s. Therefore, US economic policy tried specifically to solve the problem with cheap money and easily available credit.
"It seems to have worked wonderfully for a long time," says Rajan. "People could buy houses with borrowed money that increased in value and served as collateral for new loans - they could then put this money into consumption." The problem of growing inequality had been covered for so long.
The IMF economists Michael Kumhof and Romain Rancièreh have supported this argument with a theoretical model. In it they show that rising income inequality can lead to the poorer strata trying to maintain their standard of living more and more through loans - and that at least for a while they can borrow more and more easily.
In the long run, this makes the financial system unstable and more susceptible to crises. More traditional social policy could solve the problem, write the IMF economists. If the state redistributes income, it could possibly make the economy more stable.
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